MACOM Reports Fiscal Fourth Quarter and Fiscal Year 2018

MACOM Reports Fiscal Fourth Quarter and Fiscal Year 2018 Financial Results

Adjusted EBITDA - is a calculation that adds depreciation expense and consulting agreement income to our Adjusted Non-GAAP Income from Operations. Adjusted EBITDA is a measure that management reviews and utilizes for operational analysis purposes. We believe competitors and others in the financial industry utilize this Non-GAAP measure for analysis purposes.

Free Cash Flow - is a calculation that starts with cash flow from operating activities, reduces this amount by our capital expenditures in the applicable period and adds AppliedMicro transaction related payments. Free Cash Flow is a measure that management reviews and utilizes for cash flow analysis purposes. We believe competitors and others in the financial industry utilize this Non-GAAP measure for analyzing a company's cash flow.


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share data)

	Three Months Ended									Twelve Months Ended
	September 28, 2018			June 29, 2018			September 29, 2017			September 28, 2018			September 29, 2017
	September 28, 2018			June 29, 2018			September 29, 2017			September 28, 2018			September 29, 2017
Revenue	$	151,188		$	137,872		$	166,381		$	570,398		$	698,772
Cost of revenue	80,206			89,703			79,485			324,692			371,888
Gross profit	70,982			48,169			86,896			245,706			326,884
Operating expenses:
Research and development	46,226			48,240			39,398			177,713			147,986
Selling, general and administrative	42,280			42,471			42,398			161,673			187,886
Impairment charges	—			—			4,352			6,575			4,352
Restructuring charges	(36		)	102			401			6,265			2,744
Total operating expenses	88,470			90,813			86,549			352,226			342,968
(Loss) income from operations	(17,488		)	(42,644		)	347			(106,520		)	(16,084		)
Other income (expense):
Warrant liability gain (expense)	2,750			(6,728		)	13,958			27,646			(2,522		)
Interest expense, net	(8,089		)	(8,039		)	(6,953		)	(31,338		)	(28,855		)
Other expense, net	(3,609		)	(37,281		)	(1		)	(45,023		)	(2,044		)
Total other (expense) income	(8,948		)	(52,048		)	7,004			(48,715		)	(33,421		)

(Loss) income before income taxes	(26,436		)	(94,692		)	7,351			(155,235		)	(49,505		)
Income tax (benefit) expense	(10,320		)	(9,482		)	7,352			(21,473		)	100,911
Loss from continuing operations	(16,116		)	(85,210		)	(1		)	(133,762		)	(150,416		)
Loss from discontinued operations	(378		)	(220		)	(10,719		)	(6,215		)	(19,077		)
Net loss	$	(16,494	)	$	(85,430	)	$	(10,720	)	$	(139,977	)	$	(169,493	)

Net loss per share:
Basic:
Loss from continuing operations	$	(0.25	)	$	(1.31	)	$	(0.00	)	$	(2.07	)	$	(2.48	)
Loss from discontinued operations	(0.01		)	0.00			(0.17		)	(0.10		)	(0.31		)
Loss per share - basic	$	(0.25	)	$	(1.32	)	$	(0.17	)	$	(2.16	)	$	(2.79	)

Diluted:
Loss from continuing operations	$	(0.29	)	$	(1.31	)	$	(0.21	)	$	(2.47	)	$	(2.48	)
Loss from discontinued operations	(0.01		)	0.00			(0.16		)	(0.10		)	(0.31		)
Loss per share - diluted	$	(0.29	)	$	(1.32	)	$	(0.38	)	$	(2.57	)	$	(2.79	)

Shares - Basic	65,170			64,920			64,243			64,741			60,704
Shares - Diluted	65,648			64,920			65,156			65,311			60,704


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands)

	September 28, 2018		September 29, 2017
	September 28, 2018		September 29, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	94,676	$	130,104
Short term investments	98,221		84,121
Accounts receivable, net	97,375		136,096
Inventories	122,837		136,074
Income tax receivable	17,601		18,493
Assets held for sale, current	4,840		35,571
Prepaids and other current assets	23,311		22,438
Total current assets	458,861		562,897
Property and equipment, net	149,923		131,019
Goodwill and intangible assets, net	826,861		934,857
Deferred income taxes	2,272		948
Other investments	31,094		—
Other long-term assets	13,484		7,402
TOTAL ASSETS	$	1,482,495	$	1,637,123

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of lease payable	$	467	$	815
Current portion of long-term debt	6,885		6,885
Accounts payable	41,951		47,038
Accrued liabilities	49,945		58,243
Liabilities held for sale	—		2,144
Deferred revenue	7,757		1,994
Total current liabilities	107,005		117,119
Lease payable, less current portion	29,023		17,275
Long-term debt obligations, less current portion	658,372		661,471
Common stock warrant liability	13,129		40,775
Deferred income taxes	389		15,172
Other long-term liabilities	5,902		7,937
Total liabilities	813,820		859,749
Stockholders' equity	668,675		777,374
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,482,495	$	1,637,123


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands)

	Twelve Months Ended
	September 28, 2018			September 29, 2017
	September 28, 2018			September 29, 2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(139,977	)	$	(169,493	)
Depreciation and amortization	112,383			92,998
Share based compensation	31,937			36,335
Warrant liability (gain) expense	(27,646		)	2,522
Acquired inventory step-up amortization	224			44,022
Loss (gain) on disposition of business	34,343			(25,520		)
Deferred income taxes	(16,528		)	92,171
Loss on minority equity investment	10,406			—
Impairment related charges	9,143			4,352
Other adjustments to reconcile loss to net operating cash	(594		)	6,497
Inventories	(2,166		)	(4,094		)
Accounts receivable	38,679			(15,754		)
Change in other operating assets and liabilities	(13,911		)	(2,986		)
Net cash provided by operating activities	36,293			61,050
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net	(1,000		)	(270,008		)
Sales, purchases and maturities of investments	(14,086		)	(60,493		)
Purchases of other investments	(5,000		)	—
Proceeds associated with discontinued operations	4,737			25,520
Proceeds from sale of assets	1,274			215
Purchases of property and equipment	(53,044		)	(32,804		)
Net cash used in investing activities	(67,119		)	(337,570		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable	—			96,558
Payments of financing costs	(505		)	(9,077		)
Proceeds from corporate facility financing obligation	4,000			—
Payments of notes payable and assumed debt	(7,598		)	(5,884		)
Proceeds from stock option exercises and employee stock purchases	6,957			8,281
Repurchase of common stock	(6,828		)	(18,534		)
Other adjustments	(477		)	2,309
Net cash used in (provided by) financing activities	(4,451		)	73,653
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(151		)	(6		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(35,428		)	(202,873		)
CASH AND CASH EQUIVALENTS — Beginning of period	130,104			332,977
CASH AND CASH EQUIVALENTS — End of period	$	94,676		$	130,104

Supplemental disclosure of non-cash activities
Issuance of common stock in connection with the AppliedMicro Acquisition	—			465,082


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. RECONCILIATION OF GAAP TO NON-GAAP RESULTS (unaudited and in thousands, except per share data)

	Three Months Ended										Twelve Months Ended
	September 28, 2018			June 29, 2018			September 29, 2017				September 28, 2018			September 29, 2017
	Amount			Amount			Amount				Amount			Amount
Revenue - GAAP	$	151,188		$	137,872		$	166,381			$	570,398		$	698,772
Deferred revenue		—		7,000			—				7,000			—
Adjusted revenue (Non-GAAP)	$	151,188		$	144,872		$	166,381			$	577,398		$	698,772

	Three Months Ended										Twelve Months Ended
	September 28, 2018			June 29, 2018				September 29, 2017			September 28, 2018				September 29, 2017
	Amount		% Revenue	Amount		% Revenue		Amount		% Revenue	Amount		% Revenue		Amount		% Revenue
Gross profit - GAAP	$	70,982	46.9	$	48,169	34.9		$	86,896	52.2	$	245,706	43.1		$	326,884	46.8
Amortization expense		8,515	5.6	8,593		5.9		8,592		5.2	33,428		5.8		30,286		4.3
Share-based and non-cash compensation		1,115	0.7	1,059		0.7		931		0.6	4,053		0.7		3,647		0.5
Impairment related charges		—	—	—		—		—		—	2,568		0.4		—		—
Acquisition, integration and restructuring related costs		1,176	0.8	93		0.1		208		0.1	1,966		0.3		45,283		6.5
Production and product line exits		1,000	0.7	16,165		11.2		—		—	17,165		3.0		—		—
Deferred revenue		—	—	7,000		4.8		—		—	7,000		1.2		—		—
Adjusted gross profit (Non-GAAP)	$	82,788	54.8	$	81,079	56.0		$	96,627	58.1	$	311,886	54.0		$	406,100	58.1


	Three Months Ended												Twelve Months Ended
	September 28, 2018				June 29, 2018				September 29, 2017				September 28, 2018				September 29, 2017
	Amount		% Revenue		Amount		% Revenue		Amount		% Revenue		Amount		% Revenue		Amount		% Revenue
Operating expenses - GAAP	88,470		58.5		90,813		65.9		86,549		52.0		352,226		61.8		342,968		49.1
Amortization expense	(12,438	)	(8.2	)	(13,083	)	(9.0	)	(10,993	)	(6.6	)	(48,266	)	(8.4	)	(35,456	)	(5.1	)
Share-based and non-cash compensation	(6,984	)	(4.6	)	(8,657	)	(6.0	)	(7,606	)	(4.6	)	(27,614	)	(4.8	)	(37,991	)	(5.4	)
Impairment and restructuring charges	36		—		(102	)	(0.1	)	(4,753	)	(2.9	)	(12,840	)	(2.2	)	(7,096	)	(1.0	)
Litigation costs	(982	)	(0.6	)	(997	)	(0.7	)	(675	)	(0.4	)	(3,507	)	(0.6	)	(2,284	)	(0.3	)
Acquisition, integration and restructuring related costs	(3,117	)	(2.1	)	(1,763	)	(1.2	)	(3,635	)	(2.2	)	(9,948	)	(1.7	)	(33,382	)	(4.8	)
Production and product line exits	(857	)	(0.6	)	(1,589	)	(1.1	)	—		—		(2,445	)	(0.4	)	—		—
Other	—		—		—		—		(220	)	(0.1	)	—		—		(1,123	)	(0.2	)
Adjusted operating expenses (Non-GAAP)	64,128		42.4		64,622		44.6		58,667		35.3		247,606		42.9		225,636		32.3


	Three Months Ended													Twelve Months Ended
	September 28, 2018					June 29, 2018					September 29, 2017			September 28, 2018					September 29, 2017
	Amount			% Revenue		Amount			% Revenue		Amount		% Revenue	Amount			% Revenue		Amount			% Revenue
Loss from operations - GAAP	$	(17,488	)	(11.6	)	$	(42,644	)	(30.9	)	$	347	0.2	$	(106,520	)	(18.7	)	$	(16,084	)	(2.3	)
Amortization expense	20,953			13.9		21,676			15.0		19,585		11.8	81,694			14.1		65,742			9.4
Share-based and non-cash compensation	8,099			5.4		9,716			6.7		8,538		5.1	31,666			5.5		41,638			6.0
Impairment and restructuring charges	(36		)	—		102			0.1		4,753		2.9	15,408			2.7		7,096			1.0
Litigation costs	982			0.6		997			0.7		675		0.4	3,507			0.6		2,284			0.3
Acquisition, integration and restructuring related costs	4,293			2.8		1,856			1.3		3,843		2.3	11,914			2.1		78,664			11.3
Production and product line exits	1,857			1.2		17,753			12.3		—		—	19,610			3.4		—			—
Deferred revenue	—			—		7,000			4.8		—		—	7,000			1.2		—			—
Other	—			—		—			—		218		0.1	—			—		1,123			0.2
Adjusted income from operations (Non-GAAP)	$	18,660		12.3		$	16,456		11.4		$	37,959	22.8	$	64,279		11.1		$	180,463		25.8

Depreciation expense	7,416			4.9		7,597			5.2		7,461		4.5	30,099			5.2		25,908			3.7
Consulting income	—			—		—			—		1,875		1.1	—			—		7,500			1.1
Adjusted EBITDA (Non-GAAP)	$	26,076		17.2		$	24,053		16.6		$	47,295	28.4	$	94,378		16.3		$	213,871		30.6


	Three Months Ended															Twelve Months Ended
	September 28, 2018					June 29, 2018					September 29, 2017					September 28, 2018					September 29, 2017
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Net loss - GAAP	$	(16,494	)	(10.9	)	$	(85,430	)	(62.0	)	$	(10,720	)	(6.4	)	$	(139,977	)	(24.5	)	$	(169,493	)	(24.3	)
Amortization expense	20,953			13.9		21,676			15.0		19,585			11.8		81,694			14.1		65,742			9.4
Share-based and non-cash compensation	8,099			5.4		9,716			6.7		8,538			5.1		31,666			5.5		41,638			6.0
Impairment and restructuring charges	(36		)	—		102			0.1		4,753			2.9		15,408			2.7		7,096			1.0
Warrant liability expense (gain)	(2,750		)	(1.8	)	6,728			4.6		(13,958		)	(8.4	)	(27,646		)	(4.8	)	2,522			0.4
Non-cash interest, net	1,015			0.7		1,036			0.7		827			0.5		4,587			0.8		3,373			0.5
Litigation costs	982			0.6		997			0.7		675			0.4		3,507			0.6		2,284			0.3
Acquisition, integration and restructuring related costs	4,293			2.8		1,856			1.3		3,843			2.3		11,914			2.1		78,664			11.3
Production and product line exits	1,857			1.2		17,753			12.3		—			—		19,610			3.4		—			—
Discontinued operations, excluding consulting income	378			0.3		220			0.2		12,594			7.6		6,215			1.1		26,577			3.8
Equity investment and sale of business losses	3,462			2.3		37,202			25.7		—			—		44,749			7.8		—			—
Deferred revenue	—			—		7,000			4.8		—			—		7,000			1.2		—			—
Other	—			—		—			—		218			0.1		—			—		3,131			0.4
Tax effect of non-GAAP adjustments	(11,235		)	(7.4	)	(10,232		)	(7.1	)	3,981			2.4		(24,453		)	(4.2	)	83,943			12.0
Adjusted net income (Non-GAAP)	$	10,524		7.0		$	8,624		6.0		$	30,336		18.2		$	34,274		5.9		$	145,477		20.8


	Three Months Ended																							Twelve Months Ended
	September 28, 2018								June 29, 2018							September 29, 2017								September 28, 2018								September 29, 2017
	Net Income (Loss)				Income (loss) per diluted share				Net Income (Loss)			Income (loss) per diluted share				Net Income (Loss)				Income (loss) per diluted share				Net Income (Loss)				Income (loss) per diluted share				Net Income (Loss)				Income (loss) per diluted share
Net loss - GAAP	$	(16,494		)					$	(85,430	)					(10,720			)					(139,977			)					(169,493			)
Warrant liability gain	(2,750			)					—							(13,958			)					(27,646			)					—
Net loss - diluted	$	(19,244		)	$	(0.29		)	$	(85,430	)	$	(1.32		)	$	(24,678		)	$	(0.38		)	$	(167,623		)	$	(2.57		)	$	(169,493		)	$	(2.79	)

Adjusted (Non-GAAP)	$	10,524			$	0.16			$	8,624		$	0.13			$	30,336			$	0.46			$	34,274			$	0.52			$	145,477			$	2.32

	Three Months Ended																							Twelve Months Ended
	September 28, 2018								June 29, 2018							September 29, 2017								September 28, 2018								September 29, 2017
	Shares								Shares							Shares								Shares								Shares
Diluted shares - GAAP	65,648								64,920							64,243								65,311								60,704
Incremental shares	236								725							1,687								376								1,877
Adjusted diluted shares (Non-GAAP)	65,884								65,645							65,930								65,687								62,581

	Three Months Ended																							Twelve Months Ended
	September 28, 2018								June 29, 2018							September 29, 2017								September 28, 2018								September 29, 2017
	Amount				% Revenue				Amount			% Revenue				Amount				% Revenue				Amount				% Revenue				Amount				% Revenue
Interest expense, net - GAAP	$	8,089			5.4				$	8,039		5.8				$	6,953			4.2				$	31,338			5.5				$	28,855			4.1
Non-cash interest expense	(1,015			)	(0.7			)	(1,036		)	(0.7			)	(827			)	(0.5			)	(4,588			)	(0.8			)	(3,373			)	(0.5		)
Adjusted Interest Expense (Non-GAAP)	$	7,074			4.7				$	7,003		4.8				$	6,126			3.7				$	26,750			4.6				$	25,482			3.6

	Three Months Ended																							Twelve Months Ended
	September 28, 2018								June 29, 2018							September 29, 2017								September 28, 2018								September 29, 2017
	Amount				% Revenue				Amount			% Revenue				Amount				% Revenue				Amount				% Revenue				Amount				% Revenue
Cash flow from operations	$	25,076			16.6				$	59		—				$	12,361			7.4				$	36,293			6.4				$	61,050			8.7
Capital expenditures	(13,601		)		(9.0		)		(12,863		)	(8.9		)		(8,308		)		(5.0		)		(53,044		)		(9.2		)		(32,804		)		(4.7		)
AppliedMicro transaction related payments	—				—				—			—				3,426				2.1				—				—				31,959				4.6
Free cash flow (Non-GAAP)	$	11,475			7.6				$	(12,804	)	(8.8		)		$	7,479			4.5				$	(16,751	)		(2.9		)		$	60,205			8.6
Free cash flow as a percentage of Adjusted net income	109		%						(148		)%					25		%						(49		)%						41		%

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